APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS.
MR. JUSTICE JACKSON, after stating the case, delivered the opinion of the court.
The proof fails to show, as said in the opinion of the court below, that the lease was ever reported to or confirmed by the court. The receiver's reports which were approved by the court did not disclose the fact of the existence of the lease, or its terms and provisions, in such manner as to make the court's approval of the reports a confirmation of the lease.
The question then remains whether the order appointing the receiver conferred upon him the requisite authority to
enter into a contract of lease, involving a large annual expenditure, and extending beyond the receivership so as to make the contract a proper charge against the trust property under the administration of the court?
While there is some want of harmony in the authorities upon the question as to how far a receiver may make and enter into contracts without the previous approval or subsequent ratification of the court, which shall be binding upon the trust, we are of opinion that the order appointing the receiver in this case was not broad enough in its terms to authorize him to enter into the lease in question so as to give it validity without the approval or confirmation of the court.
It is undoubtedly true that a receiver, without the previous sanction of the court, manifested by special orders, may incur ordinary expenses or liability for supplies, material, or labor needed in the daily administration of railroad property committed to his care as an officer of the court; but it seems equally well settled that the courts decline to sanction the exercise of this discretion on the part of receivers in respect to large outlays, or contracts extending beyond the receivership, and intended to be binding upon the trust. The receiver being an officer of the court, and acting under the court's direction and instructions, his powers are derived from and defined by the court under which he acts. He is not such a general agent as to have any implied power, and his authority to make expenditures and incur liabilities -- like the one in question -- must be either found in the order of his appointment, or be approved by the court, before they acquire validity, and have any binding force upon the trust.
In Cowdrey v. Galveston, Houston &c. Railroad, 93 U.S. 352, it was held that a receiver is not authorized, without the previous direction of the court, to incur any expenses on account of property in his hands, beyond what is absolutely essential to its preservation and use, as contemplated by his appointment. Accordingly, the expenditures of a receiver to defeat a proposed subsidy from a city, to aid in the construction of a railroad parallel with the one in his hands, were properly disallowed in the settlement of his final account,
although such road, if constructed, might have diminished the future earnings of the road in his charge.
This same general principle is recognized in Union Trust Co. v. Illinois Midland Co., 117 U.S. 434, 479, where debts for considerable sums of money, borrowed by the receiver without previous authority from the court, were not allowed any priority out of the trust fund, although the moneys borrowed were applied to pay expenses of the receivership, such as supplies, repairs, and pay-rolls, and to replace moneys which had been so applied, for the reason that no order of the court had been obtained to borrow funds for those purposes.
In Lehigh Coal and Navigation Co. v. Central Railroad, 35 N.J. Eq. 426, it was said that "the receiver may undoubtedly appropriate moneys in his hands, belonging to the trust, to such purposes connected with the trust as he may think proper, always taking the risk that the court will finally approve his action; but he has no authority to bind the trust by contract without the authority of the court. Until his contracts are approved and ratified by the court the court is at liberty to deal with them as to it shall appear just, and may either modify them or disregard them entirely. . . . All persons ...